Constant growth rate-initial investment


The Yurdone Corporation wants to set up a private cemetery business. According to the CFO, Barry M. Deep, business is "looking up". As a result, the cemetery project will provide net cash inflow of $98,000 for the firm during the first year, and the cash flows are projected to grow at a rate of 3 percent per year forever. The project needs an initial investment of $1,510,000.

i) What is the NPV for the project if Yurdone's needed return is 12 percent?

ii) If Yurdone needs a return of 12 percent on such undertakings, must the firm reject or accept the project?

iii) The company is somewhat unsure concerning the assumption of a 3 percent growth rate in its cash flows. At what constant growth rate would the company just break even if it still needed a return of 12 percent on the investment?

Solution Preview :

Prepared by a verified Expert
Financial Accounting: Constant growth rate-initial investment
Reference No:- TGS03336

Now Priced at $35 (50% Discount)

Recommended (94%)

Rated (4.6/5)